----

|  INDEX |
|-------------|
|        |   |   | PageNumber |
| PART I.     | FINANCIAL INFORMATION |   |
|        |   |   |   |
|        | Item 1. | Financial Statements |   |
|        |   | Condensed Consolidated Balance Sheets as of December 31, 2010 (Unaudited)and June 30, 2010 |  4 |
|        |   |   |   |
|        |   | Condensed Consolidated Statements of Operations (Unaudited)For the three months ended December 31, 2010 and 2009 |  5 |
|        |   |   |   |
|        |   | Condensed Consolidated Statements of Operations (Unaudited)For the six months ended December 31, 2010 and 2009 |  6  |
|        |   | Condensed Consolidated Statement of Changes in Shareholders’ Equity (Unaudited)For the six months ended December 31, 2010 |  7 |
|        |   |   |   |
|        |   | Condensed Consolidated Statements of Cash Flows (Unaudited)For the six months ended December 31, 2010 and 2009 |  8 |
|        |   |   |   |
|        | Notes to Condensed Consolidated Financial Statements (Unaudited) | 10 |
|        |   | Note A – | Basis of Presentation and Recent Accounting Pronouncements |   |
|        |   | Note B – | Stock-Based Compensation and Warrants |   |
|        |   | Note C – | Inventories |   |
|        |   | Note D – | Discontinued Operations |   |
|        |   | Note E – | Deferred Revenue |   |
|        |   | Note F – | Loss Per Share |   |
|        |   | Note G – | Equity |   |
|        |   | Note H – | Related Party Transactions |   |
|        |   | Note I – | Line of Credit and Term Loan |   |
|        |   | Note J – | Legal |   |
|        |   | Note K – | Subsequent Events |   |
|        |   | Note L – | Liquidity |   |
|        |   |   |   |   |
|        |   |   |   |   |
|        |   |   |   |
|        | Item 2. | Management’s Discussion and Analysis of Financial Conditionand Results of Operations |  21 |
|        |   |   |   |
|        | Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 28 |
|        |   |   |   |
|        | Item 4. | Controls and Procedures | 28 |
|        |   |   |   |
| PART II.    | OTHER INFORMATION |   |
|        |   |   |   |
|        | Item 1. | Legal Proceedings | 29 |
|        |   |   |   |
|        | Item 2. | Unregistered Sale of Equity Securities and Use of Proceeds | 30 |
|        |   |   |   |
|        | Item 4. | Removed and Reserved | 30 |
|        |   |   |   |
|        | Item 6. | Exhibits | 31 |

----

----

|          CONDENSED CONSOLIDATED BALANCE SHEETS           |
|-------------------------------------------------------------------------------------------------------|
|           AS OF DECEMBER 31, 2010 AND JUNE 30, 2010 |
|                                                                                                  |   |   |   |   |   |   |
|                                                                                                  |   |   |   | December 31, 2010 |   | June 30, 2010 |
| ASSETS                                                                                                |   |  (unaudited) |   |   |
| CURRENT ASSETS                                                                                        |   |   |   |   |
|                                                                                                  | Cash and cash equivalents | $ |                       537,600 | $ |                       400,500 |
|                                                                                                  | Accounts receivable, net |   |                    1,984,200 |   |                    2,493,900 |
|                                                                                                  | Inventories, net |   |                    1,848,900 |   |                     1,222,500 |
|                                                                                                  | Assets related to discontinued operations |   |                         39,500 |   |                      1,971,000 |
|                                                                                                  | Prepaid expenses and other current assets |   |                        491,600 |   |                       654,700 |
|                                                                                                  |   | Total current assets |   |                    4,901,800 |   |                    6,742,600 |
|                                                                                                  |   |   |   |   |   |   |
| PROPERTY, PLANT AND EQUIPMENT, NET                                                                    |   |                       327,600 |   |                       233,800 |
|                                                                                                  |   |   |   |   |   |   |
| OTHER ASSETS                                                                                          |   |   |   |   |
|                                                                                                  | Goodwill |   |                  12,575,400 |   |                  12,575,400 |
|                                                                                                  | Other intangible assets, net |   |                       554,700 |   |                       770,200 |
|                                                                                                  | Other assets |   |                          32,100 |   |                        174,200 |
|                                                                                                  |   | Total other assets |   |                   13,162,200 |   |                   13,519,800 |
| TOTAL ASSETS                                                                                          | $ |                   18,391,600 | $ |                 20,496,200 |
|                                                                                                  |   |   |   |   |   |   |
| LIABILITIES AND  SHAREHOLDERS' EQUITY                                                       |   |   |   |   |
| CURRENT LIABILITIES                                                                                   |   |   |   |   |
|                                                                                                  | Accounts payable and accrued expenses | $ |                   2,387,700 | $ | 1,917,100 |
|                                                                                                  | Dividends payable |   |                          51,500 |   | 56,400 |
|                                                                                                  | Notes payable, current |   |                   4,428,000 |   |                    6,328,000 |
|                                                                                                  | Capital leases |   |                          14,500 |   |                            18,100 |
|                                                                                                  | Customer advances |   |                        176,900 |   |                            4,500 |
|                                                                                                  | Liabilites related to discontinued operations |   |                     1,433,100 |   |                      1,498,100 |
|                                                                                                  | Deferred revenue |   |                       325,000 |   |                       309,300 |
|                                                                                                  |   | Total current liabilities |   |                    8,816,700 |   |                    10,131,500 |
|                                                                                                  |   |   |   |   |   |   |
| LONG-TERM LIABILITIES                                                                                 |   |   |   |   |
|                                                                                                  | Deferred revenue, long-term |   |                       329,800 |   |                       375,500 |
|                                                                                                  | Capital leases, long-term |   |                                   - |   |                            5,000 |
| TOTAL LIABILITIES                                                                                     |   |                    9,146,500 |   |                   10,512,000 |
|                                                                                                  |   |   |   |   |   |   |
|                                                                                                  | Preferred Stock - Series B Convertible - 500,000 shares authorized, |   |   |   |   |
|                                                                                                  |   | 116,800 and 111,200 issued and outstanding, respectively |   |                     1,154,500 |   |                     1,098,500 |
|                                                                                                  |   |   |   |   |   |   |
| SHAREHOLDERS' EQUITY                                                                                  |   |   |   |   |
|                                                                                                  | Preferred Stock |   |   |   |   |
|                                                                                                  |   | Preferred Stock - Series D Convertible - 500,000 shares authorized, |   |   |   |   |
|                                                                                                  |   |    82,300 and 134,200 shares issued and outstanding, respectively |   |                        814,900 |   |                     1,333,800 |
|                                                                                                  |   | Preferred Stock - Series E Convertible - 750,000 shares authorized, |   |   |   |   |
|                                                                                                  |   |    725,000 and 735,000 shares issued and outstanding, respectively |   |                    3,165,900 |   |                     3,210,900 |
|                                                                                                  | Common Stock |   |   |   |   |
|                                                                                                  |   | Class A - 75,000,000 shares authorized, 5,507,600 and 4,665,500 |   |   |   |   |
|                                                                                                  |   |    shares, net of 200 treasury shares valued at $2,800 and 2,000 |   |   |   |   |
|                                                                                                  |   |    valued at $30,000, outstanding at December 31, 2010 and |   |               109,336,200 |   |                107,355,700 |
|                                                                                                  |   |    June 30, 2010, respectively |   |   |   |   |
|                                                                                                  |   | Class B - 25,000,000 shares authorized and 0 shares oustanding |   |                                   - |   |                                    - |
|                                                                                                  | Accumulated deficit |   |             (105,226,400) |   |               (103,014,700) |
|                                                                                                  |   | Total shareholders' equity |   |                   8,090,600 |   |                    8,885,700 |
|                                                                                                  |   |   |   |   |   |   |
| TOTAL LIABILITIES & SHAREHOLDERS' EQUITY                                                          | $ |                   18,391,600 | $ |                 20,496,200 |
|                                                                                                  |   |   |   |   |   |   |
| See accompanying notes to the condensed consolidated financial statements                             |

----

| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|
| FOR THE THREE MONTHS ENDED DECEMBER 31, (unaudited)                                                                                               |
|                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                              |   |   |   | 2010 |   | 2009 |
|                                                                                                                                              |   |   |   |   |   |   |
| NET SALES                                                                                                                                         | $ | 3,958,200 | $ | 3,627,200 |
|                                                                                                                                              | Cost of goods sold |   | 2,475,300 |   | 2,297,100 |
| GROSS PROFIT                                                                                                                                      |   | 1,482,900 |   | 1,330,100 |
|                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                              | Selling, general and administrative expense |   | 1,587,500 |   | 1,235,900 |
|                                                                                                                                              | Corporate expense |   | 282,900 |   | 269,700 |
|                                                                                                                                              | Amortization of stock-based compensation |   | 59,800 |   | 70,200 |
|                                                                                                                                              | Depreciation and amortizaton |   | 126,300 |   | 134,500 |
| OPERATING LOSS                                                                                                                                    |   | (573,600) |   | (380,200) |
|                                                                                                                                              |   |   |   |   |   |   |
| OTHER INCOME & (EXPENSES)                                                                                                                     |   |   |   |   |
|                                                                                                                                              | Interest expense, net |   | (86,300) |   | (205,400) |
|                                                                                                                                              | Other income (expense), net |   |            (9,000) |   | (1,100) |
| LOSS FROM CONTINUING OPERATIONS                                                                                                                   |   | (668,900) |   | (586,700) |
|                                                                                                                                              |   |   |   |   |   |   |
| LOSS FROM DISCONTINUED OPERATIONS                                                                                                                 |   | (100,000) |   | (603,600) |
|                                                                                                                                              |   |   |   |   |   |   |
| NET LOSS                                                                                                                                          |   | (768,900) |   | (1,190,300) |
|                                                                                                                                              | Preferred stock dividends |   | (79,800) |   | (117,700) |
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                                                                                                      | $ | (848,700) | $ | (1,308,000) |
|                                                                                                                                              |   |   |   |   |   |   |
| NET LOSS PER COMMON SHARE - BASIC AND DILUTED                                                                                                     |   |   |   |   |
|                                                                                                                                              |   |  - Continuing operations | $ | (0.12) | $ | (0.14) |
|                                                                                                                                              |   |  - Discontinued operations | $ | (0.02) | $ | (0.14) |
|                                                                                                                                              |   |  - Preferred stock dividends | $ |              (0.02) | $ | (0.03) |
|                                                                                                                                              |   |  - Net loss per share attributable to common shareholders | $ | (0.16) | $ | (0.31) |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                                                                                        |   |   |   |   |
|                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                              |   |  - Basic and diluted |   | 5,437,400 |   | 4,241,400 |
|                                                                                                                                              |   |   |   |   |   |   |
|             See accompanying notes to the condensed consolidated financial statements |

----

| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                                   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|
| FOR THE SIX MONTHS ENDED DECEMBER 31, (unaudited)                                                                                                 |
|                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                              |   |   |   | 2010 |   | 2009 |
|                                                                                                                                              |   |   |   |   |   |   |
| NET SALES                                                                                                                                         | $ | 7,652,800 | $ | 6,604,100 |
|                                                                                                                                              | Cost of goods sold |   | 4,966,500 |   | 4,001,500 |
| GROSS PROFIT                                                                                                                                      |   | 2,686,300 |   | 2,602,600 |
|                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                              | Selling, general and administrative expense |   | 3,135,000 |   | 2,430,500 |
|                                                                                                                                              | Corporate expense |   | 585,800 |   | 430,500 |
|                                                                                                                                              | Amortization of stock-based compensation |   | 397,700 |   | 239,000 |
|                                                                                                                                              | Depreciation and amortizaton |   | 256,500 |   | 270,100 |
| OPERATING LOSS                                                                                                                                    |   | (1,688,700) |   | (767,500) |
|                                                                                                                                              |   |   |   |   |   |   |
| OTHER INCOME & (EXPENSES)                                                                                                                     |   |   |   |   |
|                                                                                                                                              | Interest expense, net |   | (254,100) |   | (379,900) |
|                                                                                                                                              | Other income (expense), net |   |            (9,300) |   | (1,900) |
| LOSS FROM CONTINUING OPERATIONS                                                                                                                   |   | (1,952,100) |   | (1,149,300) |
|                                                                                                                                              |   |   |   |   |   |   |
| LOSS FROM DISCONTINUED OPERATIONS                                                                                                                 |   | (100,000) |   | (1,106,400) |
|                                                                                                                                              |   |   |   |   |   |   |
| NET LOSS                                                                                                                                          |   | (2,052,100) |   | (2,255,700) |
|                                                                                                                                              | Preferred stock dividends |   | (159,600) |   | (258,200) |
| NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                                                                                                      | $ | (2,211,700) | $ | (2,513,900) |
|                                                                                                                                              |   |   |   |   |   |   |
| NET LOSS PER COMMON SHARE - BASIC AND DILUTED                                                                                                     |   |   |   |   |
|                                                                                                                                              |   |  - Continuing operations | $ | (0.37) | $ | (0.28) |
|                                                                                                                                              |   |  - Discontinued operations | $ | (0.02) | $ | (0.26) |
|                                                                                                                                              |   |  - Preferred stock dividends | $ | (0.03) | $ | (0.06) |
|                                                                                                                                              |   |  - Net loss per share attributable to common shareholders | $ | (0.42) | $ | (0.60) |
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING                                                                                                        |   |   |   |   |
|                                                                                                                                              |   |   |   |   |   |   |
|                                                                                                                                              |   |  - Basic and diluted |   | 5,265,800 |   | 4,158,100 |
|                                                                                                                                              |   |   |   |   |   |   |
|             See accompanying notes to the condensed consolidated financial statements |

----

| CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY       |
|---------------------------------------------------------------------------|
| FOR THE SIX MONTHS ENDED DECEMBER 31, 2010 (unaudited)                    |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                      |   | COMMON STOCK(NET OF TREASURY STOCK) |   | SERIES DPREFERRED STOCK |   | SERIES EPREFERRED STOCK |   | ACCUMULATED |   |   |
|                                                                      |   | SHARES |   | AMOUNT |   | SHARES |   | AMOUNT |   | SHARES |   | AMOUNT |   | DEFICIT |   | TOTAL |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balances, June 30, 2010                                                   |       4,665,500 |  $ |     107,355,700 |   |           134,200 |  $ |     1,333,800 |   |        735,000 |  $ |    3,210,900 |  $ |          (103,014,700) |  $ |          8,885,700 |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                      | Shares issued for services |                3,100 |   |                5,300 |   |                       - |   |                    - |   |                   - |   |                   - |   |                               - |   |                  5,300 |
|                                                                      | Shares issued for payment of notes |                 1,100 |   |                2,100 |   |                       - |   |                    - |   |                   - |   |                   - |   |                               - |   |                  2,100 |
|                                                                      | Shares issued for exercise of warrants |          256,200 |   |          304,800 |   |                       - |   |                    - |   |                   - |   |                   - |   |                               - |   |            304,800 |
|                                                                      | Value of stock based compensation |                      - |   |           400,700 |   |                       - |   |                    - |   |                   - |   |                   - |   |                               - |   |             400,700 |
|                                                                      | Private offering, net of expenses |          384,300 |   |           612,400 |   |                       - |   |                    - |   |                   - |   |                   - |   |                               - |   |             612,400 |
|                                                                      | Series B Preferred dividends, paid in kind |                      - |   |                       - |   |                       - |   |                    - |   |                   - |   |                   - |   |                   (56,000) |   |             (56,000) |
|                                                                      | Series D Preferred dividends, paid or accrued |             16,600 |   |              27,100 |   |                       - |   |                    - |   |                   - |   |                   - |   |                   (20,800) |   |                 6,300 |
|                                                                      | Conversion of Series D preferred stock to |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                      |   common stock |           129,700 |   |            518,900 |   |            (51,900) |   |       (518,900) |   |                   - |   |                   - |   |                               - |   |                         - |
|                                                                      | Series E Preferred dividends, paid or accrued |            34,300 |   |             54,900 |   |                       - |   |                    - |   |                   - |   |                   - |   |                   (82,800) |   |             (27,900) |
|                                                                      | Conversion of Series E preferred stock to |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                      |   common stock |              15,000 |   |             45,000 |   |                       - |   |                    - |   |        (10,000) |   |        (45,000) |   |                               - |   |                         - |
|                                                                      | NASDAQ listing fees |                      - |   |            (17,900) |   |                       - |   |                    - |   |                   - |   |                   - |   |                               - |   |              (17,900) |
|                                                                      | Treasury share adjustment |                1,800 |   |             27,200 |   |   |   |   |   |   |   |   |   |   |   |               27,200 |
|                                                                      | Net loss |                      - |   |                       - |   |                       - |   |                    - |   |                   - |   |                   - |   |              (2,052,100) |   |        (2,052,100) |
| Balances, December 31, 2010                                               |        5,507,600 |  $ |   109,336,200 |   |             82,300 |  $ |         814,900 |   |        725,000 |  $ |     3,165,900 |  $ |         (105,226,400) |  $ |         8,090,600 |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| See accompanying notes to the condensed consolidated financial statements |

----

| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                           |
|---------------------------------------------------------------------------|
| FOR THE SIX MONTHS ENDED DECEMBER 31, (unaudited)                         |
|                                                                      |   |   |   |   |   |   |   |
|                                                                      |   |   |   |   | 2010 |   | 2009 |
| CASH FLOWS FROM OPERATING ACTIVITIES                                      |   |   |   |   |
|                                                                      | Net loss |   | $ | (2,052,100) | $ | (2,255,700) |
|                                                                      | Adjustments to reconcile net loss to net |   |   |   |   |
|                                                                      | cash used in operating activities: |   |   |   |   |
|                                                                      |   | Depreciation and amortization |   | 259,900 |   | 324,000 |
|                                                                      |   | Stock-based compensation |   | 400,700 |   | 259,400 |
|                                                                      |   | Stock issued for services |   | 5,300 |   | 19,000 |
|                                                                      |   | Impairment charge |   |                     - |   |         325,000 |
|                                                                      |   | Interest converted to equity |   |                     - |   |            50,000 |
|                                                                      |   | Fees and interest paid with debt |   |                     - |   |            96,200 |
|                                                                      | Changes in operating assets and liabilities: |   |   |   |   |
|                                                                      |   | Accounts receivable, net |   | 502,200 |   | 2,500 |
|                                                                      |   | Inventories, net |   | (556,000) |   | 474,300 |
|                                                                      |   | Costs and estimated earnings in excess of billings |   |   |   |   |
|                                                                      |   |   on uncompleted contracts |   | 12,700 |   | 55,000 |
|                                                                      |   | Prepaid expenses and other current assets |   | 113,000 |   | 119,900 |
|                                                                      |   | Accounts payable and accrued expenses |   | 297,300 |   | (1,421,800) |
|                                                                      |   | Deferred revenue |   | (46,400) |   | 91,600 |
|                                                                      |   | Billings in excess of costs and estimated earnings |   |   |   |   |
|                                                                      |   |    on uncompleted contracts |   |              7,300 |   |        (139,700) |
|                                                                      |   | Customer advances |   |          172,400 |   |         777,400 |
|                                                                      |   | Other assets |   |   | 32,200 |   | 63,000 |
|                                                                      | Net cash used in operations |   |        (851,500) |   |      (1,159,900) |
|                                                                      |   |   |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                      |   |   |   |   |
|                                                                      | Purchase of property, plant and equipment |   |            (4,900) |   |           (10,900) |
|                                                                      | Proceeds from sale of net RFID Technology segment assets |   |     2,000,000 |   |                      - |
|                                                                      | Net cash provided by (used in) investing activities | $ |       1,995,100 | $ |           (10,900) |
|                                                                      |   |   |   |   |   |   |   |
| See accompanying notes to the condensed consolidated financial statements |

----

| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)               |
|---------------------------------------------------------------------------|
| FOR THE SIX MONTHS ENDED DECEMBER 31, (continued)                         |
|                                                                      |   |   |   |   |   |   |
|                                                                      |   |   |   | 2010 |   | 2009 |
|                                                                      |   |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                      |   |   |   |   |
|                                                                      | Proceeds from borrowings | $ |            484,900 | $ |                362,700 |
|                                                                      | Repayment on borrowings |   |       (2,382,800) |   |                 (51,200) |
|                                                                      | Repayment of capital lease |   |               (8,600) |   |                   (7,200) |
|                                                                      | Proceeds from sale of equity instruments, net |   |            944,400 |   |                848,300 |
|                                                                      | Cash dividends paid |   |             (26,500) |   |                   (5,400) |
|                                                                      | Other |   |   |              (17,900) |   |                 (19,400) |
|                                                                      |    Net cash provided by (used in) financing  activities |   |        (1,006,500) |   |              1,127,800 |
|                                                                      |   |   |   |   |   |   |
| NET INCREASE (DECREASE) IN CASH                                           |   |              137,100 |   |                (43,000) |
|                                                                      |   |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, beginning of period                            |   |            400,500 |   |                726,900 |
|                                                                      |   |   |   |   |   |   |
| CASH AND CASH EQUIVALENTS, end of period                                  | $ |            537,600 | $ |                683,900 |
|                                                                      |   |   |   |   |   |   |
| SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION                            |   |   |   |   |
|                                                                      |   |   |   |   |   |   |
|                                                                      | Net cash paid during the period for interest | $ |             254,100 | $ |                  171,500 |
|                                                                      |   |   |   |   |   |   |
|                                                                      | Non-Cash Activities: |   |   |   |   |
|                                                                      |   | Value of shares issued for services and credit line amendment | $ |                 5,300 | $ |                   19,000 |
|                                                                      |   | Value of stock issued for payment of notes | $ |                  2,100 | $ |                460,000 |
|                                                                      |   | Series B preferred stock dividend, paid in kind | $ |               56,000 | $ |                  50,700 |
|                                                                      |   | Series D preferred stock dividend, paid in kind | $ |                         - | $ |                 166,700 |
|                                                                      |   | Series D preferred stock dividend, paid in common stock or accrued | $ |               33,400 | $ |                   67,000 |
|                                                                      |   | Series D preferred stock converted to line of credit | $ |                         - | $ |               1,691,100 |
|                                                                      |   | Series D preferred stock converted to common stock | $ |             518,900 | $ |                            - |
|                                                                      |   | Series E preferred stock dividend, paid in common stock or accrued | $ |               53,500 | $ |                            - |
|                                                                      |   | Series E preferred stock converted to common stock | $ |               45,000 | $ |                            - |
|                                                                      |   |   |   |   |   |   |
|                                                                      |   |   |   |   |   |   |
| See accompanying notes to the condensed consolidated financial statements |

----

----

| ·   | Expected term is determined under the simplified method using an average of the contractual term and vesting period of the award as appropriate statistical data required to properly estimate the expected term was not available; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Expected volatility of award grants made under the Company’s plans is measured using the historical daily changes in the market price of the Company’s common stock over the expected term of the award; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Risk-free interest rate is to approximate the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards; and, |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Forfeitures are based on the history of cancellations of awards granted by the Company and management’s analysis of potential future forfeitures. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                   | Awards granted                                                                                                                          |
|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                   | six months ended                                                                                                                        |
|                                   | December 31, 2010                                                                                                                       |
| Dividend yield                         |                        0% |
| Expected volatility                    |                      62%       |
| Weighted-average volatility            |                      62%            |
| Risk-free interest rate                |                  2% - 4%                           |
| Expected life of options (in years)    |              2.0 - 3.75                                                     |
| Weighted average grant-date fair value |                     $.67                 |

----

|                          |                                                                                                              |      |                                                                                                                      |   | Weighted Average |   | Weighted Average                                                                                                     |                                                                      | Aggregate                                                                                                                       |   | Aggregate |
|-------------------------------|-------------------------------------------------------------------------------------------------------------------|-----------|---------------------------------------------------------------------------------------------------------------------------|--------|------------------|--------|----------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|--------|-----------|
|                          |                                                                                                              |      |                                                                                                                      |   | Exercise Price   |   | Remaining                                                                                                            |                                                                      | Fair                                                                                                                            |   | Intrinsic |
|                          |                                                                                                              |      | Shares                                                                                                                    |   | Per Share        |   | Contractual Term (1)                                                                                                 |                                                                      | Value                                                                                                                           |   | Value (2) |
|                          |                                                                                                              |      |                                                                                                                      |   |             |   |                                                                                                                 |                                                                      |                                                                                                                            |   |      |
| Outstanding July 1, 2010      | 955,800                                                                                                           |      | $6.27                                                                                                                     |   | 3.01             |   |  $     4,324,300                                                                       |                                                                      | -                                                                                                                               |
|                          | Shares repriced during period                                                                                     | (866,000) |                                                                                                                      | $5.82  |             | 2.78   |                                                                                                                 |       (3,873,400)                           |                                                                                                                            | -      |
|                          | Repriced replacement shares                                                                                       | 866,000   |                                                                                                                      | $1.52  |             | 2.78   |                                                                                                                 |            415,900 |                                                                                                                            | -      |
|                          | Granted                                                                                                           |      | 110,000                                                                                                                   |   | $2.14            |   | 4.60                                                                                                                 |                                                                      |              73,800                                            |   | -         |
|                          | Exercised                                                                                                         |      |                     - |   | $0.00            |   | -                                                                                                                    |                                                                      |                      - |   | -         |
|                          | Forfeited or expired                                                                                              | (64,800)  |                                                                                                                      | $6.07  |             | -      |                                                                                                                 |          (293,200)           |                                                                                                                            | -      |
| Outstanding December 31, 2010 | 1,001,000                                                                                                         |      | $1.98                                                                                                                     |   | 2.76             |   |  $        647,400                                                       |                                                                      | $0                                                                                                                              |
| Exercisable December 31, 2010 | 746,600                                                                                                           |      | $2.09                                                                                                                     |   | 2.30             |   |  $                  - |                                                                      | $0                                                                                                                              |
|                          |                                                                                                              |      |                                                                                                                      |   |             |   |                                                                                                                 |                                                                      |                                                                                                                            |   |      |
| (1)                           | Remaining contractual term presented in years.                                                                    |      |                                                                                                                      |   |             |   |                                                                                                                 |                                                                      |
| (2)                           | The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards |
|                          | and the closing price of the Company's common stock as of December 31, 2010, for those awards that have an        |
|                          | exercise price below the closing price as of December 31, 2010 of $1.40.                                          |      |                                                                                                                      |   |             |   |

|                                                |             |    |                                                                 |   | Weighted         |
|-----------------------------------------------------|------------------|---------|----------------------------------------------------------------------|--------|------------------|
|                                                |             |    | Number of                                                            |   | Average          |
|                                                |             |    | Shares                                                               |   | Exercise Price $ |
| Warrants Outstanding, June 30, 2010                 |             | 409,000 | $                                                                    | 11.47  |
|                                                | Granted          |    | 95,100                                                               |   | 2.64             |
|                                                | Exercised        |    | (256,200)                                                            |   | 1.19             |
|                                                | Canceled/Expired |    |           (46,800) |   | 24.00            |
| Warrants Outstanding, December 31, 2010 (unaudited) |             | 201,100 | $                                                                    | 5.77   |

----

|                              |   | December 31,                                                                          |   | June 30,                                                                        |
|-----------------------------------|--------|---------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------|
|                              |   | 2010                                                                                  |   | 2010                                                                            |
|                              |   | (unaudited)                                                                           |   |                                                                            |
| Raw materials and purchased parts | $      | 1,848,900                                                                             | $      | 1,637,500                                                                       |
| Finished goods                    |   |               - |   |              - |
|                              |   | 1,848,900                                                                             |   | 1,637,500                                                                       |
| Less reserves for obsolescence    |   |               - |   | (415,000)                                                                       |
|                              | $      | 1,848,900                                                                             | $      | 1,222,500                                                                       |

----

|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |
|-------------------------------------------------|--------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |  Six Months Ended December 31,                                                                                                       |                                                                                                                                                                            |  Three Months Ended December 31,                                                                                                                                           |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      | 2010                                                                                                                                      |                                                                                                                                                                            | 2009                                                                                                                                                                            |                                                                                                                                                                            | 2010                                                                                                                                      |                                                                                                                                                                            | 2009   |
| Sales                                           |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |
|                                            | Data Storage                         | $                                                                                                                                                                         |                             - | $                                                                                                                                         |                  829,500                                                                   | $                                                                                                                                                                               |                              - | $                                                                                                                                         |                  358,700                                                                   |
|                                            | RFID Technology                      |                                                                                                                                                                      |                   38,700                                                        |                                                                                                                                      |                  563,700                                                                   |                                                                                                                                                                            |                              - |                                                                                                                                      |                   331,800                                                             |
|   Total Sales                         | $                                    |                   38,700                                                        | $                                                                                                                                                                         |               1,393,200                                             | $                                                                                                                                                                               |                              - | $                                                                                                                                                                               |                  690,500                             |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |
| Gross Profit                                    |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |
|                                            | Data Storage                         | $                                                                                                                                                                         |                             - | $                                                                                                                                         |                  284,200                                                                   | $                                                                                                                                                                               |                              - | $                                                                                                                                         |                    112,000                                                       |
|                                            | RFID Technology                      |                                                                                                                                                                      |                    13,500                                                  |                                                                                                                                      |                    114,300                                                       |                                                                                                                                                                            |                              - |                                                                                                                                      |                   123,000                                                             |
|   Total Gross Profit                  | $                                    |                    13,500                                                  | $                                                                                                                                                                         |                  398,500                             | $                                                                                                                                                                               |                              - | $                                                                                                                                                                               |                  235,000                             |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |
| Gross Margin                                    |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |
|                                            | Data Storage                         |                                                                                                                                                                      |                             - |                                                                                                                                      | 34.3%                                                                                                                                                                           |                                                                                                                                                                            |                              - |                                                                                                                                      | 31.2%                                                                                                                                                                           |
|                                            | RFID Technology                      |                                                                                                                                                                      | 34.9%                                                                                                                                                                     |                                                                                                                                      | 20.3%                                                                                                                                                                           |                                                                                                                                                                            |                              - |                                                                                                                                      | 37.1%                                                                                                                                                                           |
|   Total Gross Margin                  |                                 | 34.9%                                                                                                                                                                     |                                                                                                                                                                      | 28.6%                                                                                                                                     |                                                                                                                                                                            |                              - |                                                                                                                                                                            | 34.0%                                                                                                                                     |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |
| Selling, General and Administrative Expense     |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |
|                                            | Data Storage                         | $                                                                                                                                                                         |                             - | $                                                                                                                                         |                    311,600                                                       | $                                                                                                                                                                               |                              - | $                                                                                                                                         |                   146,000                                                             |
|                                            | Data Storage asset impairment charge |                                                                                                                                                                      |                 100,000                                                                   |                                                                                                                                      |                  325,000                                                                   |                                                                                                                                                                            |                   100,000                                                             |                                                                                                                                      |                  325,000                                                                   |
|                                            | RFID Technology                      |                                                                                                                                                                      |                 155,700                                                                   |                                                                                                                                      |                  868,300                                                                   |                                                                                                                                                                            |                              - |                                                                                                                                      |                  367,600                                                                   |
|   Total SG&A Expense              | $                                    |                255,700                                                                         | $                                                                                                                                                                         |               1,504,900                                             | $                                                                                                                                                                               |                   100,000                                                             | $                                                                                                                                                                               |                  838,600                             |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |
| Income (Loss) from Discontinued Operations      |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |
|                                            | Data Storage                         | $                                                                                                                                                                         |               (100,000)                                                                             | $                                                                                                                                         |                (352,400)                                                                             | $                                                                                                                                                                               |                 (100,000)                                                                       | $                                                                                                                                         |                (359,000)                                                                             |
|                                            | RFID Technology                      |                                                                                                                                                                      |                             - |                                                                                                                                      |                (754,000)                                                                             |                                                                                                                                                                            |                              - |                                                                                                                                      |                (244,600)                                                                             |
|   Total Operating Income (Loss)       | $                                    |               (100,000)                                                                             | $                                                                                                                                                                         |              (1,106,400)                                                 | $                                                                                                                                                                               |                 (100,000)                                                                       | $                                                                                                                                                                               |                (603,600)                                       |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |
| Capital Expenditures                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |
|                                            | Data Storage                         | $                                                                                                                                                                         |                             - | $                                                                                                                                         |                              - | $                                                                                                                                                                               |                              - | $                                                                                                                                         |                              - |
|                                            | RFID Technology                      |                                                                                                                                                                      |                             - |                                                                                                                                      |                       5,600                                       |                                                                                                                                                                            |                              - |                                                                                                                                      |                       3,900                                       |
|   Total Capital Expenditures          | $                                    |                             - | $                                                                                                                                                                         |                       5,600 | $                                                                                                                                                                               |                              - | $                                                                                                                                                                               |                       3,900 |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |
| Depreciation and Amortization                   |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |
|                                            | Data Storage                         | $                                                                                                                                                                         |                             - | $                                                                                                                                         |                     13,600                                                  | $                                                                                                                                                                               |                              - | $                                                                                                                                         |                       6,700                                       |
|                                            | RFID Technology                      |                                                                                                                                                                      |                     3,400                                             |                                                                                                                                      |                    42,300                                                        |                                                                                                                                                                            |                              - |                                                                                                                                      |                    20,200                                                        |
|   Total Depreciation and Amortization | $                                    |                     3,400                                             | $                                                                                                                                                                         |                    55,900                  | $                                                                                                                                                                               |                              - | $                                                                                                                                                                               |                    26,900                  |
|                                            |                                 |                                                                                                                                                                      |                                                                                                                                                                      |                                                                                                                                      |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                                                            |                                                                                                                                      |                                                                                                                                                                            |   |

----

|                                        |                                                     |            |                                                                                                                                                                                  | December 31, 2010                                                                                                                                                                     |                                                                                                                                                                                  | June 30, 2010                                                                                                                                                                         |
|---------------------------------------------|----------------------------------------------------------|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Assets related to discontinued operations   |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Accounts receivable, net                                 |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                       37,000                                            | $                                                                                                                                                                                     |                               - |
|                                        | Total Accounts receivable, net                           | $               |                       37,000                                            | $                                                                                                                                                                                     |                               - |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Inventory, net                                           |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | Data Storage    | $                                                                                                                                                                                     |                               - | $                                                                                                                                                                                     |                       50,000                                            |
|                                        |                                                     | RFID Technology |                                                                                                                                                                                  |                         2,500                                 |                                                                                                                                                                                  |                     860,900                                                       |
|                                        | Total Inventory, net                                     | $               |                         2,500                                 | $                                                                                                                                                                                     |                     910,900                                                       |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Costs and estimated earnings in excess of billings       |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                               - | $                                                                                                                                                                                     |                       95,200                                            |
|                                        | Total costs and estimated earnings in excess of billings | $               |                               - | $                                                                                                                                                                                     |                       95,200                                            |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Prepaid expenses and other assets                        |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                               - | $                                                                                                                                                                                     |                     328,800                                                       |
|                                        | Total prepaid expenses and other assets                  | $               |                               - | $                                                                                                                                                                                     |                     328,800                                                       |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Property, plant and equipment, net                       |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                               - | $                                                                                                                                                                                     |                       59,400                                            |
|                                        | Total costs and estimated earnings in excess of billings | $               |                               - | $                                                                                                                                                                                     |                       59,400                                            |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Goodwill                                                 |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                               - | $                                                                                                                                                                                     |                     576,700                                                       |
|                                        | Total costs and estimated earnings in excess of billings | $               |                               - | $                                                                                                                                                                                     |                     576,700                                                       |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | Total           | $                                                                                                                                                                                     |                       39,500                                            | $                                                                                                                                                                                     |                  1,971,000                                                                       |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
| Liabilities related to assets held for sale |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Billings in excess of costs and estimated earnings       |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                       23,500                                            | $                                                                                                                                                                                     |                       98,700                                            |
|                                        | Total billings in excess of costs and estimated earnings | $               |                       23,500                                            | $                                                                                                                                                                                     |                       98,700                                            |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Deferred warranty revenue and customer advances          |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                     751,700                                                       | $                                                                                                                                                                                     |                     768,100                                                       |
|                                        | Total deferred warranty revenue and customer advances    | $               |                     751,700                                                       | $                                                                                                                                                                                     |                     768,100                                                       |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Accounts payable and accrued expenses                    |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        |                                                     | RFID Technology | $                                                                                                                                                                                     |                     657,900                                                       | $                                                                                                                                                                                     |                     631,300                                                       |
|                                        | Total accounts payable and accrued expenses              | $               |                     657,900                                                       | $                                                                                                                                                                                     |                     631,300                                                       |
|                                        |                                                     |            |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |                                                                                                                                                                                  |
|                                        | Total liabilities related to assets held for sale        | $               |                  1,433,100                                                                       | $                                                                                                                                                                                     |                  1,498,100                                                                       |

|                         |   |  December 31,                                                        |    |  June 30,                                                            |
|------------------------------|--------|---------------------------------------------------------------------------|---------|---------------------------------------------------------------------------|
|                         |   | 2010                                                                      |    | 2010                                                                      |
|                         |   |  (unaudited)                                                         |    |                                                                      |
| Deferred revenue             | $      |            654,800 |  $ |            684,800 |
| Less - current portion       |   |          (325,000)           |    |          (309,300)           |
| Deferred revenue - long term | $      |            329,800 |  $ |            375,500 |

|     On September 16, 2010, the Board of Directors approved the immediate re-pricing of certain outstanding stock options (approximately 866,000 shares to forty-nine individuals) held by current Officers, Directors and employees to $1.50 per share, a 7.9% premium to the closing market price on September 15, 2010 of $1.39.  The compensation value created by the re-pricing, as determined under the Black Scholes method, was approximately $298,400 and under current accounting rules results in a non cash expense in current and future periods, not to exceed the vesting periods of the stock options.  The Company elected to expense in the current quarter the entire increase in stock based compensation resulting from the re-pricing.  Accordingly, the value of employee stock-based compensation recognized for the six months ended December 31, 2010 amounted to $400,700, including the $298,400 discussed above, compared to $239,000 recognized in the comparable six months of the prior fiscal year.  See Note B – Stock-Based Compensation for additional discussion related to employee stock-based compensation. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|     During October 2010, the Company raised $304,800 through the exercise of 256,200 warrants.  On October 13, 2010, the Company’s Board of Directors approved the re-pricing of certain warrants, held by non officers and directors, to purchase 256,200 shares of the Company’s Class A Common Stock.  The warrants, with exercise prices  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ranging from $4.00 to $14.40 per share, were re-priced to $1.19 per share, reflecting an approximate 15% discount from the then current market, and required the warrants to be exercised through October 21, 2010.  If the warrants were not exercised by the October 21, 2010 date, the exercise price reverted back to the pre-adjusted price.  The warrant re-pricing discount represented the Company's estimate of market value, net of costs, of a private placement of an equal amount and was completed to raise required working capital for the Company. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

| EBITDA RECONCILIATION to NET LOSS FROM CONTINUING OPERATIONS |                          |
|--------------------------------------------------------------|-------------------------------|
|   (Unaudited)                                           |                          |
|                                                         |                          |   |   |   |   | 3 months ended |   | 3 months ended |   |
|                                                         |                          |   |   |   |   | December 31, |   | December 31, |   |
|                                                         |                          |   |   |   |   | 2010 |   | 2009 |   |
| EBITDA before Stock-based compensation                       |                          |   |   |   |   |   |
| and Corporate Expense                                        |                          |   | $ |                  (113,600) | $ |                     93,100 |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
|                                                         | Corporate Expense             |   |   |   | (282,900) |   | (269,700) |   |
|                                                         | Stock-based compensation      |   |   | (59,800) |   | (70,200) |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
| EBITDA                                                       |                          |   |   |   |                (456,300) |   |                (246,800) |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
|                                                         | Net interest expense          |   |   |   |                  (86,300) |   |                (205,400) |   |
|                                                         | Depreciation and amortization |   |   |                 (126,300) |   |                 (134,500) |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
| NET LOSS FROM CONTINUING OPERATIONS                          | $                             |                (668,900) | $ |                (586,700) |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
|                                                         |                          |   |   |   |   |   |   |   |   |

----

| EBITDA RECONCILIATION to NET LOSS FROM CONTINUING OPERATIONS |                          |
|--------------------------------------------------------------|-------------------------------|
|   (Unaudited)                                           |                          |
|                                                         |                          |   |   |   |   | 6 months ended |   | 6 months ended |   |
|                                                         |                          |   |   |   |   | December 31, |   | December 31, |   |
|                                                         |                          |   |   |   |   | 2010 |   | 2009 |   |
| EBITDA before Stock-based compensation                       |                          |   |   |   |   |   |
| and Corporate Expense                                        |                          |   | $ |                (458,000) | $ |                   170,200 |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
|                                                         | Corporate Expense             |   |   |   | (585,800) |   | (430,500) |   |
|                                                         | Stock-based compensation      |   |   | (397,700) |   | (239,000) |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
| EBITDA                                                       |                          |   |   |   |              (1,441,500) |   |                (499,300) |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
|                                                         | Net interest expense          |   |   |   |                 (254,100) |   |                (379,900) |   |
|                                                         | Depreciation and amortization |   |   |                (256,500) |   |                 (270,100) |   |
|                                                         |                          |   |   |   |   |   |   |   |   |
| NET LOSS FROM CONTINUING OPERATIONS                          | $                             |              (1,952,100) | $ |              (1,149,300) |   |

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|   | The Company carried out, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended).  Based on their evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that, the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this report, because of the material weaknesses previously identified as of June 30, 2010 and the lack of appropriate independent verification supporting the proper disposal of some $415,000 of obsolete inventory, previously reserved, during the quarter ended December 31, 2010.  The inventory was disposed of by a subcontractor at the direction of StarTrak mangement who had reviewed inventory values in previous periods.  Notwithstanding the existence of the material weaknesses identified as of June 30, 2010 and the additional material weaknesses identified during the quarter ended December 31, 2010, management has concluded that the condensed consolidated financial statements in this Form 10-Q fairly present, in all material respects, the Company’s financial position, results of operations and cash flows for the periods and dates presented. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b)   | CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING |
|-----------------|------------------------------------------------------|

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|   | 31.1 | Certification of Chief Executive Officer |
|--------|------|------------------------------------------|
|   | 31.2 | Certification of Chief Financial Officer |
|   | 32.1 | Certification of Chief Executive Officer |
|   | 32.2 | Certification of Chief Financial Officer |

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| /s/ Robert R. Kauffman               |
|--------------------------------------|
| ________________________             |
| Robert R. Kauffman                   |
| Chairman and Chief Executive Officer |

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| /s/ John A. Carlson                                  |
|------------------------------------------------------|
| ________________________                             |
| John A. Carlson                                      |
| Executive Vice President and Chief Financial Officer |

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| 1.   | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|----------------|-----------------------------------------------------------------------------------------------------------------------|

| 2.   | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 1.   | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|----------------|-----------------------------------------------------------------------------------------------------------------------|

| 2.   | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|